Allahabad High Court
Sharma Rice Mill vs The Commissioner, Trade Tax on 17 December, 2004
Author: Rajes Kumar
Bench: Rajes Kumar
JUDGMENT Rajes Kumar, J.
1. Present revision under Section 11 of UP. Trade Tax Act (hereinafter referred to as "Act") is directed against the order of Full Bench of Tribunal dated 24.09.2004 relating to the assessment year.
2. Brief facts of the case are that the applicant is partnership firm established a new unit in the manufacture and sales of rice, rice bran and paddy husk. Unit was issued the eligibility certificate on 17.02.1999 under Section 4-A of the Act and the exemption from the payment of tax was granted for ten years for the period 20.06.1996 to 19.06.2006 or 200% of the fixed capital investment of Rs. 18,17,401/- i.e. upto monetary tax limit of Rs. 36,34,802/-, whichever expires earlier. Proceeding under Section 4-A (3) of the Act was initiated by the Commissioner of Trade Tax, U.P., Lucknow and by ex-parte order dated 05.07.2001, the eligibility certificate was cancelled w.e.f. 20.06.1996 on the ground that the machines installed were old machines. Said order was set aside and the matter was remanded back by the Tribunal vide order dated 24.01.2002 with the direction to the Commissioner of Trade Tax to decide the matter afresh, after giving opportunity to the applicant. In compliance to the order, Commissioner of Trade Tax gave a notice dated 22.04.2004 in continuance of the earlier notice dated 14.11.2000. Applicant filed reply dated 25.08.2003 and after considering the reply and giving opportunity of hearing cancelled the eligibility certificate vide order dated 15.03.2004 w.e.f. 20.06.1996 on the ground that unit installed the old machinery and had concealed this fact from the Divisional Level Committee. This inference was drawn on the ground that the dealers of Delhi, from whom purchases were alleged to have been made were not in existence and the dealer of Moradabad, from whom the purchases was made, was trader of old parts. Aggrieved by the order of Commissioner of Trade Tax, applicant filed second appeal before the Tribunal, which has been dismissed by the impugned order.
3. Tribunal held as follows:
"1. Since the unit claims benefit, the burden squarely lies on it to establish that the plant and machinery used by it were new, but the appellant had failed to discharge the burden. Even no specific plea to that effect was taken by it.
2. Divisional Level Committee granted exemption certificate on 17.02.1999 believing the case of the appellant unit that it had purchased plant and machinery from M/s Technokraft Industrial Enterprises, Delhi and M/s Diesel Power International, Delhi besides some purchases made from a local dealer at Moradabad. But when the inquiries were made after grunt of the certificate, it was found that the two firms in Delhi were non-existent. The respondent has cancelled the certificate mainly on the ground that these two firms were not in existence and, therefore, the plant and machinery installed by the appellant, was not new."
4. In respect of the purchases made from M/s Technokraft Industrial Enterprises, Delhi it is observed that:
"during the enquiry, it was found that the registration number as mentioned in the bill was of some other dealer and at the address given by M/s Technokraft Industrial Enterprises, Delhi a shoe shop was in existence and M/s Technokraft Industrial Enterprises, Delhi had never worked at that address. Similarly, it was found that the shop shown to be of M/s Diesel Power International, Delhi was allotted to M/s Jagrati Plastic Ltd. These informations were collected from the Trade Tax Officers of Delhi by Assistant Commissioner, Trade Tax, Moradabad. It was also found that the telephone numbers as mentioned in the bills of these two dealers, were of residences."
5. With regard to the payment by the demand draft by the State Bank of India, it is observed that "the papers annexures-6, 8, 11 and 17 shows that they were not sent under the registered cover to the addressee. Moreover, the complete address of these firms us mentioned in the bills has not been given. In annexure-6, only M/s Technokraft Industrial Enterprises, Delhi and in annexure-11, M/s Techno Craft Industrial enterprises, Delhi has been mentioned. In annexure-l7, M/s Diesel Power International, Delhi has been mentioned. Record shows that bunk accounts of those firms were opened and closed with the demand draft of the appellant and during the entire period, the accounts remained, only the drafts of the appellant were deposited. No other draft of any other person was deposited in the account at Punjab National Hank, Delhi. It is a circumstances, which goes against the appellant and the appellant can not claim any benefit on account of having made any payment through bunk drafts."
6. Tribunal further observed as follows:
"Learned counsel for the appellant further contended that the appellant had issued Form-C as well as Form-31 and these machines were imported through Mohan Nagar Check Post, where the forms were duly checked. Hut the record shows that selling dealer had not put any sales tax in Delhi. Therefore, issuing of Form-C is of no help to the appellant. As far us Form-31 is concerned, it only shows that the machines were brought, but it can not suggest or show that the machines were new.
Further enquiry, it was found that M/s Mohd. Rafiq & Company Moradabad from whom the unit had purchased main switch, starter and regulator vide bill No. 51 dated 08.06.1996, dealt only in old electric motors, A.C., D.C. Transformer, Generator set and iron scrap etc. Appellant did not get any statement from this dealer to show that he had been dealing in new items also. Appellant failed to prove discharge the burden placed on it by proviso to Explanation (2) of Section 4-A (6) of the Act, which runs as under:-
"Provided that onus of proving that such machinery, plant, equipment, apparatus or components have not been used in or the value thereof have not been included in fixed capital investment for obtaining benefit under this section by any other factory or workshop in India, shall be on the new unit."
7. With regard to the decision of this Court in the case of Jai Durga Detergent & Chemicals v. CST, reported in 1995 UPTC, 891, it had been held that in the instant case facts about the non-existence of the two dealers came to the light subsequent to the grant of the certificate and, therefore, Commissioner of Trade Tax was empowered under Section 4-A (3) of the Act to cancel the certificate.
8. It is further held that decision in the case of Mansarovar Bottling Company Limited, Bijnor v. CTT, reported in 1999 UPTC, 864 and the decision of this Court in the case of CTT v. R.K. Coal Sales Pvt. Ltd., Moradabad, reported in 1999 UPTC, 1147 and in the case of Progressive Components (Pvt.) Ltd., Agra v. CTT, reported in 2000 UPTC, 131 are not applicable and are distinguishable on the facts of the case. Tribunal accordingly, come to the conclusion that the learned Commissioner Trade Tax has rightly cancelled the eligibility certificate granted to the applicant as the applicant had failed to discharge the burden that plant and machinery used by it were not earlier used in any other factory or workshop in India and at the time of the alleged purchase, the firms were not in existence and this fact was not in the knowledge of the Divisional Level Committee, when it granted the eligibility certificate and this fact came to the light, when the inquiries were made.
9. Heard learned counsel for the parties.
10. Learned counsel for the applicant submitted that Tribunal has illegally held that the burden lies on the applicant to establish that the plant and machinery used by it were new but the applicant had failed to discharge burden in the proceedings under Section 4-A (3) of the Act. He submitted that no doubt in view of the Proviso to Explanation (II) of Section 4-A (6) of the Act, the onus of proving that such machinery, plant, equipment, apparatus or component have not been used, falls on the applicant but when the application for exemption was in process, such burden was discharged and even on the enquiry conducted on 10.03.1997 and 15.06.1997 by the authority concerned, installed machines were found new and unused and after making the proper enquiry and having satisfied that the installed machines were new, eligibility certificate was issued. Now in the proceedings under Section 4-A (3) of the Act, it is not enough to say that the persons from whom machinery were purchased, on enquiry, it was found to be non-existence but it has to be proved as a fact that the installed machines were used and old, which could not be proved by the Commissioner of Trade fax while canceling the eligibility certificate under Section 4-A (3) of the Act He submitted that the applicant had made the purchases from M/s Technokraft Industries, Delhi and M/s Diesel Power International, Delhi as a prudence purchaser against their invoices, the payments were made against the demand draft and the machines were imported against Form 31 in respect of which Form-C were also issued but if the alleged two firms were found to be non-existence. Subsequently, applicant can not be held responsible and in any view of the matter it will not be lead to interference that the purchased machines were used and old. He submitted that applicant had purchased main switch, starter and regulator from M/s Mohd. Rafiq & Company, Moradabad, against bill No. 51 dated 08.06.1996 as a new item and merely because in the bill it is mentioned that he deals only in old items does not mean that the items purchased by the applicant were old and used and in the absence of any material to the contrary. He further submitted that so far as applicant is concerned whatever fact and the material was in their knowledge, the same were fairly placed before the Divisional Level Committee and it is wrong to say that the fact about non-existence of the selling firms were concealed. He further submitted that on the facts and circumstances of the case, Section 4-A (3) of the Act does not apply and the same was wrongly invoked by the Commissioner of Trade Tax. Learned Standing Counsel supported the order of the Tribunal.
11. Having heard learned counsel for the parties, I am of the view that the order of the Tribunal and the order of the Commissioner of Trade Tax under Section 4-A (3) of the Act are not sustainable.
12. I have perused the order of the Tribunal and the authorities below.
13. Explanation II (a) to Section 4-A (6) reads as follows:
Explanation II 'new unit', after March 31, 1990, means a factory or workshop set up a dealer after such date and satisfying the conditions laid down under this Act or Rules or Notifications made thereunder with regard to such factory or workshop and includes an industrial unit manufacturing the same goods at any other place in the State or an industrial unit manufacturing any other goods on, or adjacent to the site of an existing factory or workshop, but does not include-
(a) any factory or workshop using machinery, plant, equipment, apparatus or components already used or acquired for use in any other factory or workshop in India other than boilers, generators, moulds and dyes and other than any machinery, plant, equipment, apparatus or component sold to it by any Government Company or any Corporation owned or controlled by the Central or State Government; or
14. Proviso of Explanation (2) to Section 4-A (6) reads as follows:
"Provided that onus of proving that such machinery, plant, equipment, apparatus or components have not been used in or the value thereof have not been included in fixed capital investment for obtaining benefit under this section by any other factory or workshop in India, shall be on the new unit. "
15. Section 4-A (3) reads as follows:
"Where the Commissioner is of the opinion that the facility of exemption from or reduction in the rate of tax obtained on the basis of an eligibility certificate referred to in Clause (d) of Sub-section (1) or on the basis of any eligibility certificate issued under any executive orders of the Government issued before or after September 13, 1985 has been misused in any manner whatsoever or that the new unit has committed breach of any of the conditions, subject to which the facility of exemption from, or reduction in the rate of tax was granted or that the new unit to which the eligibility certificate has been granted in accordance with the provisions of this Act is not entitled to facility under this section or is entitled to such facility for a lesser period or from a different date he may, by order in writing passed before or after the expiration of the period of exemption or reduction, cancel or amend the eligibility from a date specified in the order and such date may be prior to the date of the however, that in cases of misuse or breach, the cancellation of eligibility certificate shall have effect not before the date of such misuse or breach:
Provided that no order under this subsection shall be passed without giving the dealer a reasonable opportunity of being heard. "
16. There is no dispute that in view of proviso to Explanation 2 to Section 4-A (6) of the Act the onus lies upon the dealer, who claimed exemption to prove that the machinery, plant, equipment, apparatus or component have not been used in other factory workshop in India but this proviso is applicable at the time of claim of the exemption by a dealer when the application for exemption under Section 4-A of the Act is under consideration before Divisional Level Committee and not in A of the Act is under consideration before Divisional Level Committee and not in the proceedings under Section 4-A (3) of the Act.
17. Therefore, basic question for consideration is whether in the unit of the applicant installed machinery, plant, equipment, apparatus or components were already used or acquired for use in any other factory or workshop in India. In the proceedings before the Divisional Level Committee while claiming exemption under Section 4-A of the Act, applicant had adduced the evidence, namely, filed the bills against which the machineries were purchased, the mode of payment by bank draft and it was submitted that the purchased machines were imported against Form 31 and were new and not already used or acquired by any other factory or workshop in India. Authority concerned made the enquiry on 10.03.1997 and 15.06.1997 at the factory and found that the installed machines etc. were new and on the basis of their enquiry report, the Divisional Level Committee treated the unit as a new unit being complied all the requirements of Section 4-A of the Act. Applicant as prudent purchaser made the purchases of machinery against the invoices issued by the sellers, payments were made against the draft and the machines were imported from Delhi against Form -31 in respect of which Form-C were also issued. Copies of bills and other documents were submitted before the Divisional Level Committee at the time of the consideration of the exemption application. At that stage, it was open to the authority concerned to make the enquiry about the sellers, but it was not preferred. However, enquiry was made at the unit of the applicant on 10.03.1997 and 15.06.1997 to verify whether the installed machines were new and they were found new. Therefore, in my opinion even if on subsequent enquiry the sellers were found in non-existence it can not lead to any inference that the purchased machines were used or acquired by any factory or workshop in India. There is no material on record to dislodge the enquiry reports dated 10.03.1997 and 15.06.1997, in which all the machines etc. were found new and not acquired by any factory or workshop etc. In the proceedings under Section 4-A (3) of the Act if the Commissioner of Trade fax intent to cancel the eligibility certificate on the ground that the installed machines were used and old, burden lies upon the Commissioner of Trade fax to establish its case, which in the present case could not establish. The fact that the machines installed in the unit were used, old or acquired by any other factory of workshop should be proved by adducing the evidence or as a result of enquiry in this regard and not merely on presumption. The basis for drawing an inference is not justified and in my opinion is vitiated.
18. On the facts of the case, it can not be said that the applicant had concealed any fact or mis-represented the Divisional Level Committee. It is not the case of misuse of eligibility certificate. Therefore, in my opinion, invoking of the provisions of Section 4-A (3) of the Act was not justified. Reliance is placed on the decision of this Court in the case of Jai Durga Detergent & Chemicals v. CST, reported in 1995 UPTC, 891, in the case of Mansarovar Bottling Company Limited, Bijnor v. CTT, reported in 1999 UPTC, 864 and in the case of CTT v. R.K. Coal Sales Pvt. Ltd., Moradabad, reported in 1999 UPTC, 1147.
19. For the reasons stated above, order of the Tribunal and the order of the Commissioner of Trade Tax under Section 4-A (3) of the Act are not sustainable.
20. In the result, revision is allowed. Order of the Tribunal and the order of the Commissioner of Trade Tax under Section 4-A (3) of the Act are quashed.